Partners can make "draws" of any amount they want. However, partners have to pay taxes on all the partnership's net profits each quarter - regardless of whether they withdrew the money. There is also a 15.3% social security tax that is added each quarter.
How can you make sure you'll have enough money at quarter-end to pay taxes? One way is to use the "gross-up" feature of a payroll calculator.
Your taxes are paid quarterly. Please see Quarterly Requirements.
- Because most business owners don't pay themselves regularly, you need to take the amount that you want to withdraw for yourself (the after-tax amount) and divide it by (5 times the number of weeks the pay is for).
- Enter that amount in the payroll calculator www.payroll-taxes.com/calculators-link.htm and select daily pay.
- Then estimate the allowances that you would take if you were an employee.
- The calculator will determine the taxes that you need to pay on that amount and give you a gross total (the amount you'll keep plus the taxes you need to pay).
- All you need to keep track of is the taxes. Multiply the results of the taxes by (5 times the number of weeks the pay is for) to get the total.
- Make sure you have reserved this amount for your quarterly tax payment.
Paying Independent Contractors
Pay independent contractors using the same systems as you do for other vendors. Do not ask for time-sheets or pay them with your regular employees.